After Another 75-Point Hike, Fed Chair Powell Said Rates May Go 'Higher Than We Thought'

The Federal Reserve officially increased its benchmark interest rate by 75 basis points again at its November meeting this week, and Chairman Jerome Powell said at a press conference Wednesday that he expects rates to continue to rise going into 2023, although at a potentially slower pace.

"We expect that ongoing increases will be appropriate," Powell said. "It’s very premature to be thinking about pausing. We have a ways to go."

The interest rate increase, which brings the Fed's benchmark rate to between 3.75% and 4%, is the fourth consecutive hike of 0.75% this year, the first time since 1980 the United States' central bank has taken such drastic action.

But with inflation data coming in "higher than expected," Powell said — it was at 8.2% annual growth in September, according to the Bureau of Labor Statistics — and unemployment at historic lows, the Fed will continue on its path to cool the economy.

Powell said "at some point, it will become appropriate to slow the pace of increases," but that pace is no longer the central question facing the Federal Reserve Board as it weighs the best way to handle inflation. Much more pressing now, he said, is what the appropriate interest ceiling should be moving forward.

"That does become the important question, we think now, is how far to go," he said. "We think there’s some ground to cover before we meet that test. We may ultimately move to higher levels than we thought at the time of the September meeting. That level is very uncertain though, and I would say we’re gonna find it over time."

The interest rate hikes have had the effect of nearly freezing commercial real estate transactions as the revenues many owners had underwritten now no longer cover their interest payments, a phenomenon known as negative leverage. Over a quarter of CMBS loans issued in the third quarter were underwritten with negative leverage, according to Moody's Analytics.

Real estate investors and lenders have said they are waiting to start transacting again until they have more clarity on where the Federal Reserve's program of rate hikes ends.

Powell reiterated during the question-and-answer period of his press conference that he expects the Fed to keep rates elevated until inflation is firmly under control. He said he is far more concerned about not raising rates enough than he is about overtightening.

While stocks jumped after the Fed released its statement indicating it could start to slow the pace of hikes, they sank after Powell's hawkish press conference, The Wall Street Journal reports.

"Our message is clear: We have a ways to go, we have some ground to cover with interest rates before we get to that level of interest rates that we think is sufficiently restrictive," he said. "We will stay the course until the job is done."